Sixth seed Williams, already out of the doubles which she also won four years ago in Sydney with sister Serena, had no answer to her unseeded but revitalised French opponent on court one.
Williams's shock defeat meant the United States had no players left in the women's singles after team mates Lisa Raymond and Chanda Rubin also lost on Wednesday. Men's second seed Andy Roddick also exited on a dire day for the Americans.
Pierce, the 29-year-old 2000 French Open champion, will play either Belgian top seed Justine Henin-Hardenne or Australian Nicole Pratt in the quarter-finals.
